This is a continuation of Part 1, discussing a number of published and unpublished decisions by the United States Court of Appeals for the Eighth Circuit and the United States Bankruptcy Appellate Panel for the Eighth Circuit (the “BAP”) that impact both consumer and business bankruptcy practice throughout the circuit.

In In re Nielsen, 518 B.R. 529 (8th Cir. BAP 2014), the BAP upheld the decision of the United States Bankruptcy Court for the Southern District of Iowa denying the debtor’s request to have her student loan debts discharged under § 523(a)(8) of the Bankruptcy Code because the debtor could not prove an undue hardship.

In In re Carter, No. 14-1182, 583 Fed. Appx. 560 (8th Cir. Nov. 17, 2014, unpublished), the appellate court affirmed the decision of the United States Bankruptcy Court for the Western District of Arkansas (and the BAP’s subsequent affirmation of the same) denying sanctions against the First National Bank of Crossett for violating the automatic stay. In this case, the bank continued pursuing a state court replevin action for logging equipment, which a logging company (of which the debtor was the owner and sole member), pledged as security for two promissory notes. Unbeknownst to the bank, prior to filing the bankruptcy petition, the debtor assigned the assets of the logging company to himself. Though the debtor was aware of the replevin action, he did not respond to the suit until after the court had issued an order for delivery. The debtor then filed a motion for sanction with the bankruptcy court. The court noted that, to be a wilful violation, the creditor must take action that is deliberate and with the knowledge that a bankruptcy petition has been filed. Here, the court found that the bank did not have knowledge of either the bankruptcy petition filed by the debtor or the transfer of assets subject to the order for delivery.

In In re Sylva Corp., 519 B.R. 776 (8th Cir. BAP 2014), the BAP addressed a rather complicated analysis relating to administrative expense claims. In this case, the debtor and GE Capital entered into an equipment lease. Following the bankruptcy petition, GE Capital filed a proof of claim based on a true lease. The debtor, at the time of the decision, had not objected to that proof of claim. After a motion to force the debtor to assume or reject the lease, and a subsequent stipulation regarding the equipment at issue, GE Capital filed a motion for an administrative expense claim under §§ 503(b)(1)(A) and 365(d)(5) of the Bankruptcy Code. The bankruptcy court analyzed the motion only under § 503 of the Bankruptcy Code (which places the burden on the moving party – GE Capital) and declined to analyze the motion under § 365(d) of the Bankruptcy Code (under which the right to an administrative expense claim is automatic – provided the requirements of that section are met – unless the debtor or objecting party can show cause to order otherwise). The BAP found that the bankruptcy court erred as a matter of law by declining to address the issue under § 365(d) of the Bankruptcy Code. The BAP also ordered the bankruptcy court to determine whether or not the lease was a true lease or a secured financing arrangement (to which § 365(d) of the Bankruptcy Code would not apply). Lastly, in the event the lease was determined to be a true lease, the BAP ordered the bankruptcy court to analyze GE Capital’s motion under: (1) § 503(b)(1)(A) of the Bankruptcy Code from the petition date to the 60th day after the petition for relief; and (2)then under § 365(d)(5) of the Bankruptcy Code for the period from or after 60 days after the filing date to the date of rejection.

In In re Gray, 519 B.R. 767 (8th Cir. BAP 2014), the BAP affirmed the decision of the United States Bankruptcy Court for the Western District of Arkansas awarding actual damages for violations of the automatic stay but reversing an award of punitive damages. In this case, the debtor was living in leased real property. After a hearing on the property owner’s motion to terminate the stay (which occurred after multiple requests for a continuance), but about two and half weeks before the bankruptcy court issued its order, the property owner evicted the debtor, changed the locks, and removed the debtor’s possessions. The debtor filed a motion for damages arising from the property owner actions. The property owner did not appear at the hearing on the motion for sanctions and the bankruptcy court awarded the debtor actual and punitive damages. On appeal the BAP addressed the property owner’s claim that his actions were not a violation of the stay due to the provisions of § 362(e)(2) of the Bankruptcy Code (which provides for the automatic termination of the stay in certain circumstances). The property owner argued that because the stay had allegedly terminated under §362(e)(2) of the Bankruptcy Code sixty days after the order for relief, his actions taken two months later could not be a violation of the automatic stay. The BAP rejected this argument noting that a creditor can waive the protections afforded by this section, which the property owner had done by: (1) not objecting to the absence of a preliminary hearing under § 362(e) of the Bankruptcy Code; (2) filing his own motion to continue the hearing on the lift stay motions; and (3) by attending a hearing on his list stay motion after the time limit in § 362(e) of the Bankruptcy Code had expired. The BAP also found that the § 362(e) argument was barred by the doctrine of judicial estoppel. Ultimately, the BAP found that the property owner deliberately acted with knowledge of the bankruptcy case. As such, the BAP upheld an award for actual damages under § 362(k) of the Bankruptcy Code. However, because the bankruptcy court did not make any findings that the property owner’s actions were egregious and intentional, the BAP reversed the award for punitive damages.

In In re McCormick, ___ B.R. ___, 2014 WL 7344318 (8th Cir. BAP Dec. 24, 2014) the BAP addressed a claim for attorney fees under § 506(b) of the Bankruptcy Code. In this case, Starion and the debtor entered into two confessions of judgment, which resulted in Starion obtaining judicial liens on the real property of the debtor. After the debtor’s plan was confirmed (following the debtor’s refusal to pay attorney fees) Starion filed a motion for the allowance of attorneys’ fees under § 506 of the Bankruptcy Code. Under applicable law, § 506(b) of the Bankruptcy Code requires a showing of four factors: (1) the claim must be an allowed secured claim; (2) the creditor holding the claim must be over-secured; (3) the entitlement to fees, costs, or charges must be provided for under the agreement or state statute under which the claim arose; and (4) the fees, costs and charges sought must be reasonable in amount. The bankruptcy court, focusing solely on the third factor, denied Starion’s motion for fees because: (1) Starion’s claim arose from the judgments entered by the state court; and (2) the judgments themselves did not provide for the payment of attorney fees. As a result, the bankruptcy court found that there was no agreement or statute providing for an award of attorneys’ fees. The BAP reversed this decision noting that promissory notes, mortgages, workout agreement and other documents related to the loans that constituted Starion’s claim against the debtor did contain appropriate attorney fee provisions, and it was from those documents that the claim ‘arose’. The judgments entered by the state court were merely a means of enforcing that claim. The BAP concluded noting that § 506(b) of the Bankruptcy Code does not require that the right to fees be provided in the agreement under which the creditor became oversecured (here, the judgment). It also does not require that it be in all agreements that make up the secured claim of the creditor.